NATIONAL FEATURES


Lawsuit Over Apple Marketing Agreement

Landmark case for state-funded research available to the public
By Curt Harler


Does a tax-supported university that develops varieties and cultivars have the right to grant exclusive or restrictive licenses to a handful of growers at the expense of the rest of the state's producers? This summer, a court in Minnesota was asked to resolve that question. The decision, which will not be handed down for a year or more, will have far-reaching effects, not just in the apple industry, but in other arenas as well.

The story dates back many years, when researchers at the University of Minnesota set out to develop an improved, sweeter apple variety. They crossed the Honeycrisp and Zestar! varieties and came up with a wonderful variety that they named SweeTango Minneiska. About 33 percent of the funding for the research came from taxpayers.

All was well until the university signed an agreement with Pepin Heights Orchard, Inc. The agreement granted Pepin Heights the exclusive rights to market and sell SweeTango.

According to a statement from the University of Minnesota, Minneiska is a "managed variety," a relatively new concept for U.S. growers that is more common abroad. The university says that "managed varieties" allow growers to maintain high quality standards related to optimum growing sites, climate and production practices.

Those on the other side of the issue say this practice limits many other growers from marketing a variety produced at a taxpayer-supported institution. They quote university policy that aims "to ensure that the results of university research will have the maximum possible beneficial effect for Minnesotans and the larger public," and "to realize a fair financial return to the university so long as this does not interfere with the first principle."

However, the grower group alleges that the exclusive license agreement "eviscerated any right to sell and distribute SweeTangoQ9 directly to wholesalers, which is an essential revenue outlet for Minnesota apple growers and the Minnesota apple industry." They also claim that the exclusive license agreement "prevents Minnesota apple growers from pooling or combining their limited production of SweeTango in order to supply larger retail or wholesale markets."

Pepin Heights Orchard got the exclusive license to commercialize MN 1914 (Honeycrisp x Zestar!), a cultivar discovered by the University of Minnesota apple breeding program located in Victoria, Minn., from the University of Minnesota Patent and Technology Licensing office in December 2005. SweeTango is a registered trademark of the University of Minnesota for fruit of the Minneiska cultivar.

The SweeTango apple hit the market in 2009 to general acclaim. Problem is, many growers maintain that the fruits of the state university breeding program are being enjoyed only by a few.

A dozen growers, calling themselves Apple Growers for Free Trade and led by Karl Townsend, Dassel Hillside Farm, Dassel, Minn., and Frank Femling, Afton Apple Orchard, Hastings, Minn., decided to fight the agreement. At a minimum, they want the court to declare the agreement void. The group also seeks at least $50,000 in damages and court fees. Moreover, they accuse the defendants of violating Article 13, Section 6 of the Constitution of the State of Minnesota, which says no person shall combine to monopolize markets for food products in this state, or interfere with or restrict the freedom of markets.

They hired Foley & Mansfield, a nationwide law firm based in Minneapolis. Attorney Lisa Lamm-Bachman has represented the growers throughout the process. "We are looking to even the playing field for Minnesota apple growers with respect to SweeTango and future varieties developed by the University of Minnesota with taxpayer funds," she says.

Why the lawsuit?

Townsend says he is concerned that few of the 200 growers in Minnesota will be able to grow and wholesale a popular variety like SweeTango now or other varieties developed with taxpayer dollars in the future.

"All of our customers insist on a full line of product," Townsend says. "You don't buy Honeycrisp from one grower and Red Delicious from another." He worries that, under this sort of agreement, "We would lose the entire account."

"One acre (of SweeTango) is the most any grower can grow, and only 50 growers would be allowed to grow them," notes Femling. With about 1,000 trees per acre, 50 planted acres would eat up the entire allocation of 50,000 trees permitted statewide under the exclusive license agreement.

"That amount we are allowed to plant is so small as to be laughable," Femling says. "Growers need enough trees to have enough apples every year for every customer. The customers will not tolerate having a variety one year and not the next."

Townsend and Femling were among several growers who bristled when they read the initial agreement. Soon, growers statewide were talking about the restrictions. "We growers felt we needed to do something so the university would not do this again in the future," said Flemling.

"Most growers recognize the benefit of a managed variety," Femling concedes, "but the restrictions on this agreement are excessive." He notes that growers without a license cannot grow and wholesale SweeTango. Small growers, especially, are excluded, since most cannot afford to pay the fee to join Next Best Thing and plant the allowed 10,000 trees. "This is a major economic investment that most small growers cannot afford to do," Townsend says.

They fear most attractive sales avenues are shut. "I can't even sell what I produce to a grower in Wisconsin to sell at his roadside market," Femling says.

"This will put us all out of business," Townsend says. "It was the Minnesota apple growers who worked so hard to bring this to market. It is insulting to growers to have an apple released this way."

UM and Pepin Heights

The university and Pepin Heights denied all of the growers' allegations. The case is in court.

"We have every confidence that we are in conformance with state and federal laws and every other law," says Dennis Courtier, owner/president of Pepin Heights Orchards, Lake City, Minn. Because of the pending court action, neither Courtier nor any of the growers challenging Pepin Heights and the University of Minnesota were free to remark about the case itself.

Courtier says that any commercial grower can sell SweeTango at any roadside or farm market. They can even do direct-store delivery wholesale, he says.

"We have to pack them," he states. He says this requirement is "to assure consistent quality." Pepin Heights works with a lot of retailers at the upper end of the market spectrum, and he says they expect good, consistent quality.

The decision could have far-reaching effects on all sorts of rootstock, seed and other material produced by university breeding projects.

The university had made an exception for direct-at-orchard sales. According to the terms of the exclusive license agreement, Minnesota apple growers other than Pepin Heights Orchard are allowed to grow a limited number of the Minneiska trees that bear SweeTango apples if those apples were sold directly to consumers at the orchards, at a farmers' market or are delivered direct to stores by the grower.

It is not unusual for a university to develop and market new varieties. Improved varieties and cultivars of everything from oranges to soybeans to turfgrass have been produced by taxpayer-supported college breeding programs. The good ones can dominate their markets for years to come. While the university may sign an agreement with a firm to produce the seed or rootstock, anyone with the dollars can buy into the improved variety and sell the vegetables or fruits produced. The difference here is that not everyone can produce SweeTango.

The new apple is grown and marketed by Next Big Thing, A Growers' Cooperative (NBT) headquartered in Lake City, Minn., and consisting of a partnership of several orchards.

"SweeTango is just that kind of apple. It is unlike anything most people have ever tasted," says Dennis Courtier, director of NBT.

All fruit produced by NBT is to be packed at member-owned packinghouses in Washington, Minnesota, New York, and Nova Scotia, Canada. It will be sold by the selling desks at those packinghouses. The marketing committee, made up of board-appointed members, determines pricing for the United States and Canada. According to NBT rules, each selling agency must adhere to this pricing strategy. The marketing committee will also select the launch customers from the various regions and develop the marketing programs to be implemented.

The first commercial plantings of MN 1914 went in the ground in spring 2007. Commercial quantities of fruit were expected this fall. While the NBT co-op is proud that it is spread over five time zones from Nova Scotia to Washington state, not everyone is on the inside, and they are upset.

David Bedford, University of Minnesota apple breeder and key contributor in the development of SweeTango, Honeycrisp and Zestar! says, "Consumers who have tried the SweeTango apple in focus groups are telling us we've found something special with this new apple, specifically citing its complex flavor combination as a key attribute that sets this apple-eating experience apart from any other."

The apple gets the same flavor analysis treatment one would expect from a fine wine. The name SweeTango was chosen by marketers to reflect the harmonious flavor combination people experience upon the first bite. The distinctive crispness and complex flavors of the apple promise to make it an immediate consumer favorite, the marketing literature says.

Even if the case is resolved this fall, which is unlikely, it will be some time before other growers can get the SweeTango into their orchards. "My understanding is that a very limited amount of trees will be propagated," Bedford says. That is another aspect of the case that will have to be worked out.

Whenever the case is resolved, the precedent will be far-reaching for breeding programs and growers everywhere.

"I can't speak for every large university, but many universities license their intellectual property. They have whole sections to do nothing else," Courtier says. He notes that the exclusive agreements include all sorts of technology for commercialization, pharmaceuticals and building systems. He says there is no reason ag products cannot be included.

Down the road

"By signing this exclusive agreement, the university and Pepin Heights were certainly only thinking of their own interests and not the best interests of the Minnesota apple growers," Femling says.

Ironically, Femling and other growers had approached the state legislature for relief when they first saw the agreement. Lawmakers set up the 2007 Plant License Task Force, which made recommendations for future agreements, but did not rectify the SweeTango situation. Thus, the court battle.

Everyone agrees it will be some time before the legal battle is resolved. Hennepin County courts usually resolve cases in about a year. Under the best scenario, a decision could be handed down in summer 2011. However, most observers do not expect a decision that fast.

"We are in the very early stages of the case," Lamm-Bachman says.

"We'd like a decision as soon as possible," Courtier says. That is one aspect of the case where both sides agree.

Curt Harler is a freelance writer and a frequent contributor to Growing. He resides in Strongsville, Ohio.